The cryptocurrency market faced its most significant liquidation event ever on Friday night in the U.S., leading to the liquidation of leveraged bullish positions worth $16 billion across bitcoin , ether , , solana , and the wider altcoin market. Many altcoins have plummeted between 20% and 40% as the market recoiled.
This situation leaves bullish investors wondering whether recovery will be quick or prolonged. Analyzing typical reactions following a crash indicates that recovery is likely to be slow, testing the patience of optimistic investors.
“When markets shift this way, there’s usually a clear strategy for the subsequent phases,” stated Zaheer Ebtikar, chief investment officer and founder of Split Capital, on X.
Here’s what a typical sequence entails:
Market Decline and Market Maker Retreat
The first phase sees the market “bleeding out,” or further declining as liquidation orders inundate exchanges, driving prices lower. This was evident overnight as various altcoins, including XRP, DOGE, and others, reached multi-month lows.
During this phase, market makers—entities that provide liquidity and maintain orderly trading—temporarily retreat to assess their risk and focus on “refilling by first addressing significant spot and perpetual arbitrages across assets,” as Ebtikar noted.
Such actions address price discrepancies between spot and futures markets through arbitrage tactics involving opposite positions in the two markets. This approach inhibits an immediate bounce back.
Data Integrity Reestablished
This stage reflects the period following a market crash, where the information channels traders and market makers rely on regain reliability. During the crash, exchanges and the underlying technology responsible for real-time updates, order book data, and order executions often experience delays or outages due to increased volatility.
Once the data feed stabilizes, market makers and significant traders begin absorbing major sell orders to restore market equilibrium. These participants take advantage of liquidation orders, which have priority in order books, facilitating bargain hunting.
Given the immense scale of forced liquidations observed overnight, this absorption phase may span several days.
Market Equilibrium
This phase involves dealers and market makers liquidating their long positions, which they initially acquired at discounted prices while absorbing liquidation orders, to capitalize on a potential rebound.
“Once dealers have filled their long positions, they will start unwinding spot and perpetual bonds once the market stabilizes. This is when the market reaches a local maximum and the volatility chart starts to reflect,” Ebtikar remarked. “Some assets with tighter supply will appear more favorable than others.”
This process is typically slow, particularly over weekends when spot ETFs do not operate, reducing overall market liquidity. This reduced liquidity complicates and slows down the ability of dealers to unwind significant positions without causing substantial price fluctuations, leading to a slowdown in unwinding during these times.
Market Establishes a Bottom
Ultimately, the market finds a stable bottom, establishing a more consistent range, and the investor confidence that was shaken by the crash starts to rebuild.
In conclusion, the significant liquidations witnessed overnight will likely extend the multi-step bottoming process, characterized by market makers strategically purchasing liquidation orders, liquidity challenges over weekends, and new price stabilization.
That said, if the major external risks—ongoing U.S.-China trade tensions—persist, predicting the end of this cycle becomes increasingly uncertain.
